Hereby I will prove how the realty boomers arguments are false.

What are the boomers arguments?

1.) Buy today, houses always increase in value in the long run.
WRONG. House prices cannot increase more than incomes in the long run. This is obvious if you think about it. If house prices go up more than people can afford to pay, buying stops, like it has stopped now.
Even Warren Buffett have pointed out that houses don't increase in intrinsic value. Unless there's a bubble or a crash, house prices simply reflect current salaries and interest rates. If a house is 100 years old, it's value in sheltering you is exactly the same as it was 100 years ago. Then came the maintenance as the house didn't renovate itself. It also has taxes, and insurance - costs that always increase and never go away. The price of the house went up about as much as salaries went up.
To put this is simple perspective, vegetable were costing Rs.5-6/kg when 5 digit salary was a rarity.
Today, the prices have gone up by about 4 times but so have the salaries. So, sounds very much like the reasoning people use now when they talk about how much their father's house appreciated "in the long run" without considering that salaries rose a proportional amount.

2.) Renting is just wastage of money.
WRONG. As said before renting is now much cheaper per month than owning. If you don't rent, you either:

* Have a mortgage, in which case you are throwing away money on interest, tax, insurance, maintenance, costs that increase forever.
* Own outright, in which case you are throwing away the extra income you could get by converting your house to cash, investing in bonds, and renting a similar place to live for much less money. This extra income is sufficient for emergency expenses,retirement etc.

Either way, owners lose much more money every month than renters and that's assuming prices don't correct to very high level & everything is smooth in the economy.

3.) As a renter, you won't have any money left as you will spend them on vacations,cars & hence won't have equity/savings etc.
WRONG. Equity is just money. Renters are actually in a better position to build equity/savings through investing in anything but housing. Renters can get rich much faster than owners, just by investing in conservative stocks & bonds.

* Owners are losing every month by paying much more for interest than they would pay for rent. The tax deduction does not come close to making owing competitive with renting.
* Owners must pay taxes simply to own a house. That is not true of stocks, bonds, or any other asset that can build equity/savings. Only houses are such a guaranteed drain on cash.
* Owners must insure a house, but not most other investments.
* Owners must pay to repair a house, but not a stock or a bond.
* Owners lose their money as house prices reduce. The EMI's remain constant in spite of reduction in rates. At the end of loan tenure, they would have paid almost twice than that of current renters who will buy at logical rates. Keep interest rates in mind. Most of the EMI is not principal amount but interest.

4.) There are great tax advantages to owning a house.
WRONG. Many people believe you can just reduce your income tax by the amount you pay in interest, but they are wrong. Buyers may not deduct interest from income tax; they deduct interest from taxable income. And even then, the tax advantage is not significant compared to the large monthly loss from owning.

If you don't own a house but want to live in one, your choice is to rent a house or rent money to buy a house. To rent money is to take out a loan. A mortgage is a money-rental agreement. House renters take no risk at all, but money-renting owners take on the huge risk of falling house prices, as well as all the costs of repairs, insurance, property taxes, etc.

5.) RE is based on local factors, it's not a national phenomenon. RE of Delhi-NCR,Bangalore & rest of the cities has nothing to do with Pune RE.
WRONG. Lending rates remain the same throughout the country. ALL loans are harder to get. This will drive prices down everywhere.

6.) A rental house provides good income. So, you can rent if you have purchased as investment.
WRONG. Rental houses provide very poor income in hyped areas and certainly cannot cover mortgage payments. Remember there is almost 300% difference between EMIs & rent for the same house.

It's pointless to do the work of being a landlord if you can make more money with no risk, no work, and no state income tax by investing in assured good returns bond.

7.) If owning is a loss in monthly cash flow, but appreciation will make up for it.
WRONG. Appreciation is negative. Prices are going down. It only adds to the injury of already high EMI's.

8.) As soon as prices drop a little, the number of buyers on the sidelines willing to jump back in increases.
WRONG. There are very few buyers left, and those who do want to buy will be limited by increasing difficulty of borrowing now that many house owners are near bankrupt as they don't save anything at the end of the month due to high EMI's.
No one has to buy, but there will be more and more people who have no choice but to sell as their payments rise. That will keep driving prices downward for a long time.

9.) House prices never fall atleast in Pune.
WRONG. If you see the RE scenario of 1996, prices crashed by 50% & took a whole 7+ years to recover.
Exact 1996 scenario may not be there today but strong correction is inevitable across the city.

10.) House prices don't fall to zero like stock prices, so it's safer to invest in real estate.
WRONG. House prices won't be zero, but the equity or the principal amount you paid can be zero or even negative. What you will pay as EMIs later in actual terms is not for the principal amount but only the interest as house prices dip. So, you will be only serving the bank.

11.) Prices will soften gradually, won't crash immediately.
WRONG. Prices are falling off a cliff. No one knows exactly what will happen, but it looks like prices will continue to fall for long time. These are just more manipulation of buyer emotions, to get them to buy even while prices are falling.

12.) The bubble prices were driven by supply and demand alone.
WRONG. Prices were driven by low interest rates and risky loans & good returns for investors in initial phases of boom in 2004-05.
Prices went up, interest rates went up & buyers savings went down. So prices are violating the most basic assumptions about supply and demand.

13.) There is lack of land.
WRONG. Ample of land is available & continue to be even in future in Pune. Sales volume are down. Even in Japan (small country with less land), prices went down. Current prices here are the same as that of 23 years ago. If we really had a housing shortage, there would not be so many vacant rentals.

14.) If you don't own, you'll live in a cheap neighborhood later.
WRONG. For the any given monthly payment, you can rent a much better house than you can buy. Renters live better, not worse. There are downsides to renting, such as being told to move at the end of your lease, or having your rent raised, but since there are thousands of vacant rentals, you can take your pick and be quite happy renting during the crash. There are similar but worse problems for owners anyway, such as being fired and losing your house, or having your interest rate and property taxes adjust upward. Remember, property taxes are forever.

15.) There's always someone predicting a real estate crash.
TRUE, yet irrelevant. There are very real crashes every decade or so. Even a broken clock is right twice a day.

16.) Local incomes justify the high prices.
WRONG. The mortgage should be more than your 3 years earning. It is much higher today. Most are already in danger/red zone.

17.) You have to live somewhere.
CORRECT. But that doesn't mean you should waste your life savings on a bad investment. You can live in a better house for much less money by renting during the down slide in RE.

18.) It's not a house, it's a home.
WRONG. Wherever one lives in it is home, be it apartment, condo, bungalow , mansion or house. Calling a house a "home" is a manipulation of your emotions for profit.

19.) If you don't buy now, you'll never get another chance.
WRONG. History proves otherwise.
Here's a beautiful quote from a analyst:-
"The real issue isn't whether you will be stuck being a renter all your life, she says. Its whether you'll get so scared about being shut out that you'll buy at the market's peak and be stuck in a property you can't afford or sell."

20.) It would take major economic recession or a major earthquake that wipes out this area in order for the price to fall by over 50%.
WRONG. Even today, if the prices fall by 50%, there will still be very few people who can buy at this levels due to uncertainty in jobs & most importantly high EMIs. Also, look at the rental rates for equivalent houses. Which loss per month is larger? EMI or rent?

contd....
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  • Originally Posted by realacres
    A very good article from Indian Express. It is a must read for all buyers as it shows how & why builders delay projects & the rights which can be exercised by the buyers in such cases of delays .

    A well-known developer having a project in the Palam Vihar neighbourhood in Gurgaon was made to pay a hefty fine and 24 per cent interest to the buyer by the National Consumer Disputes Redressal Commission (NCDRC) for not giving timely possession.”

    Cases such as this are routine as almost 90 per cent projects in India are delayed and a significant rise in complains of delayed possessions has been recorded. The image of the real estate industry is being tarnished by a few but it is the buyer who suffers the most.

    The Impact

    “I have taken a loan and am paying huge EMI on it since 95 per cent of the payment is taken by the developer. I was to get the possession in last June, hence I sold my small house by then. Since I didn’t get the possession as promised, I had to shift to a rented apartment for a short while. Now I am paying EMI and rent every month. The recent hike in interest rates has added to my ordeal. If I still do not get possession by this April, I will face increased rent as well. It is a mess,” says Jasbir Mehrotra (name changed), who has booked a flat in the project by a known developer in a central suburb of Mumbai, which has been delayed by years.

    There is no excuse for delay - Indian Express


    has he really received the compensation ?
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  • Moody's downgrades Bank of India

    Moody's Investor Service on Wednesday downgraded ratings on Bank of India's debt programmes by one notch, citing an accelerated pace of asset quality deterioration, stressed core capital levels and increased pressure on profitability. Slowing economic growth in India, high interest rates and inflation will continue to adversely impact repayment capacity of the bank's corporate borrowers, Moody's said on Wednesday.
    "Moody's expects that it will be difficult for BOI to significantly improve its relatively weak asset quality over the next 12-18 months," it said.
    Moody's revised its "Bank Financial Strength Rating" to D from D+ on a scale of A to E. India's sovereign rating is Baa3.

    The bank's non-performing loans rose to 2.74 percent by December-end from 2.23 percent in March 2011, while its net income dropped 14 percent. Moody's said the bank's return on risk weighted assets fell to 1.03 percent in the nine months to December 31 from 1.51 percent a year ago.
    "Such figures compare weakly with its peers and indicate a vulnerability in the bank's already stressed capital buffers," Moody's said.


    Moody's downgrades Bank of India - Yahoo! India Finance
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  • Originally Posted by RealHunter1
    Moody's Investor Service on Wednesday downgraded ratings on Bank of India's debt programmes by one notch, citing an accelerated pace of asset quality deterioration, stressed core capital levels and increased pressure on profitability. Slowing economic growth in India, high interest rates and inflation will continue to adversely impact repayment capacity of the bank's corporate borrowers, Moody's said on Wednesday.
    "Moody's expects that it will be difficult for BOI to significantly improve its relatively weak asset quality over the next 12-18 months," it said.
    Moody's revised its "Bank Financial Strength Rating" to D from D+ on a scale of A to E. India's sovereign rating is Baa3.

    The bank's non-performing loans rose to 2.74 percent by December-end from 2.23 percent in March 2011, while its net income dropped 14 percent. Moody's said the bank's return on risk weighted assets fell to 1.03 percent in the nine months to December 31 from 1.51 percent a year ago.
    "Such figures compare weakly with its peers and indicate a vulnerability in the bank's already stressed capital buffers," Moody's said.


    Moody's downgrades Bank of India - Yahoo! India Finance

    what this report did not tell clearly is the sector in which NPA has happened - it is real estate. Bad loans to builders and defaults of housing loan and commercial property. Of course NPA includes loan to retail, aviation, and power sector also, but RE is a big culprit
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  • Originally Posted by Meghna
    what this report did not tell clearly is the sector in which NPA has happened - it is real estate. Bad loans to builders and defaults of housing loan and commercial property. Of course NPA includes loan to retail, aviation, and power sector also, but RE is a big culprit


    In overall its about bad economy. I am sure RE has big part in it.
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  • Originally Posted by RealHunter1
    Moody's Investor Service on Wednesday downgraded ratings on Bank of India's debt programmes by one notch, citing an accelerated pace of asset quality deterioration, stressed core capital levels and increased pressure on profitability. Slowing economic growth in India, high interest rates and inflation will continue to adversely impact repayment capacity of the bank's corporate borrowers, Moody's said on Wednesday.
    "Moody's expects that it will be difficult for BOI to significantly improve its relatively weak asset quality over the next 12-18 months," it said.
    Moody's revised its "Bank Financial Strength Rating" to D from D+ on a scale of A to E. India's sovereign rating is Baa3.

    The bank's non-performing loans rose to 2.74 percent by December-end from 2.23 percent in March 2011, while its net income dropped 14 percent. Moody's said the bank's return on risk weighted assets fell to 1.03 percent in the nine months to December 31 from 1.51 percent a year ago.
    "Such figures compare weakly with its peers and indicate a vulnerability in the bank's already stressed capital buffers," Moody's said.


    Moody's downgrades Bank of India - Yahoo! India Finance

    The RE NPA issue is more grave coz the collateral which RE firms gave- mostly land, the valuations of it has now dropped. The Mumbai DLF land deal is latest eg. of this. This means that even if banks take the collateral of the RE firms, they may or may not be able to recover their outstanding loan amount. Then there are builders who had given stakes to the bank in their projects in 2009-10 & now the same project stake is being sold by the builder to investors, if any at 25-30% less than prevailing market rates.

    If the banks don't roll-over the loans like they did last year, the builders will be in big trouble soon & seeing the current posture adopted by RBI, roll-over of loans especially to RE firms is thing of the past.
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  • Originally Posted by wiseman
    Maybe because she was caught on tape trying to be a power broker and is now trying to change her red face to white with gusto?! :)

    cheers


    I do not know why Barkha Dutt has not yet accepted the blame of congress losing in the UP and other elections, after all she did more campaigning than Raul baba and Diggyraja.
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  • That is the beauty of this job - called media, you get all the attention/money and still there is no risk of loosing - let bride die - bridegroom die but the the Pundit will always get his dues (the Dakshina)
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  • Originally Posted by realacres
    The RE NPA issue is more grave coz the collateral which RE firms gave- mostly land, the valuations of it has now dropped. The Mumbai DLF land deal is latest eg. of this. This means that even if banks take the collateral of the RE firms, they may or may not be able to recover their outstanding loan amount. Then there are builders who had given stakes to the bank in their projects in 2009-10 & now the same project stake is being sold by the builder to investors, if any at 25-30% less than prevailing market rates.

    If the banks don't roll-over the loans like they did last year, the builders will be in big trouble soon & seeing the current posture adopted by RBI, roll-over of loans especially to RE firms is thing of the past.



    Have been away from Pune and this forum a few weeks .


    I keep reading these stories about how builders are in trouble. At the same time I do not hear about too much of a drop in purchase price in Pune. All these stories are about corporate stock listed builders and not the Pune garden variety ?

    Is there is any real drop in the net prices in Pune ? At what percentage level of drop should I purchase a property?
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  • This is the resistant time for markets where all forces would be put to use to stop the slide. It happens in every market and depending upon the resources available resistance will hold the market for a few months. There will be some areas where there will be slight drop or slight increase depending upon the builders financial situation and demand. Once the markets start slipping as they did at the time of rise (all around), there will be chaos all around.

    I would suggest sit, wait and watch for at least 2-3 months. If the slide starts, you would expect it to go down by 15-20% at least. The only thing is define the point where you will buy as when markets go into negative sentimental mode, not many people have the heart to step into it. I hope that helps ?
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  • I would suggest sit, wait and watch for at least 2-3 months. If the slide starts, you would expect it to go down by 15-20% at least. The only thing is define the point where you will buy as when markets go into negative sentimental mode, not many people have the heart to step into it. I hope that helps ?

    My dear Indigill, many people are sitting on the fence waiting for the slide for past many months and hope your predictions come true with fall of 15 to 20 percent in first quarter of the new financial year
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  • No Builder is going to openly admit yes there should be drop in the prices and will accept it and will ever do it.

    Cash is the king now.

    Many small builders in Pune are in cash crunch now, and they are paying upto 24%-30% interest annually and much more, and many are not even getting money on loan ( I am talking of the money lending in the black market)
    Also Builders are trying to avoid these lender. As interest payment for few yers have missed to those lenders. And these lenders are very dangerous. Also there is no real estimate of NPA in this lending as this is all in black market.

    In this situation I will give second thought to buy at such high prices and also there is very high chances that builder will delay a lot for completion of the project as he cannot found more fool and then I to buy at such prices.








    Originally Posted by msp1976
    Have been away from Pune and this forum a few weeks .


    I keep reading these stories about how builders are in trouble. At the same time I do not hear about too much of a drop in purchase price in Pune. All these stories are about corporate stock listed builders and not the Pune garden variety ?

    Is there is any real drop in the net prices in Pune ? At what percentage level of drop should I purchase a property?
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  • Originally Posted by Indigill
    This is the resistant time for markets where all forces would be put to use to stop the slide. It happens in every market and depending upon the resources available resistance will hold the market for a few months. There will be some areas where there will be slight drop or slight increase depending upon the builders financial situation and demand. Once the markets start slipping as they did at the time of rise (all around), there will be chaos all around.

    I would suggest sit, wait and watch for at least 2-3 months. If the slide starts, you would expect it to go down by 15-20% at least. The only thing is define the point where you will buy as when markets go into negative sentimental mode, not many people have the heart to step into it. I hope that helps ?


    i cannot comment on the 2-3 months time window... such timelines have been mentioned in the past but reality has turned out to be different... the problem is, the people predicting the downfall are predicting based on data and an assumption of rational buyers.. but the politicians are successfully able to turn the tables by hook or crook.

    IMO the downslide has started and stagnation in the RE deals is a good indication of it. Builder can quote anything but the the actual deals are not happening at the same rate what they used to happen earlier. This indicates that many people are delaying the decision and are on the fence.

    RE will not crash like stock market crash but it will come down in few years. Remember, even a stagnated price is ~ 10% reduction every year considering the inflation.

    Also the unsold inventory is going to get older and if buyers keep this understanding, they can ask right questions and get good deals. many schemes in Pune delivered their flats in 2010 but still have the flats left in the same scheme. This means, the 'new' flats they are selling are already 1.5 years to 2 years old. Buyers should keep themselves informed and ask for a resale price on this and not a typical 'ready possession' rate.
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  • Modi for next PM!!

    This is why Modi should be the next PM!! :)
    Watch the video on youtube link.


    Narendra Modi speaking at IIT Gandhinagar - YouTube

    Only two people seem to dislike to video, no prizes for guessing who are the two people!!
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  • Forum orders builder to hand over flat

    The Pune District Consumer Forum recently turned down the argument of a city-based developer, Ram India Mittal Township (RIMT) that the stir of the Maharashtra Navnirman Sena (MNS) against north Indians had caused the delay in handing over flat no. 403, fourth floor, building No. A-1 at ‘Life Park’ in Mohammadwadi to Colonel (retd) N Tyagrajan.

    The forum ordered the developers, Rahul Agarwal and Vijay Mittal to pay compensation of Rs50,000 and the suit cost of Rs5,000 to the complainant.

    The orders were issued on February 24, eight months after the case was filed by Tyagrajan on June 8, 2011.

    The complainant said he was supposed to receive possession of the flat by December 2008. He paid the cost of the flat (Rs47,28,525), barring Rs1,00,000 to the developer. Col Tyagrajan had taken loans of Rs15 lakh and Rs10 lakh from State Bank of India and Life Insurance Corporation.

    The developer claimed that most labourers working on the project belonged to north India and they left for their native places because of the MNS stir against north Indians in 2008. However, the aspect that the forum stressed on was the MNS stir happened for two months, hence maximum work on the project should have been completed on the possession was to be given in December 2008.

    The reports submitted by RIMT architect, Vinod Dhusiya to the complainant said 70% and 85% of the work was completed by January 28, 2009 and March 21, 2009. According to the forum, these facts proved that the builder failed to stand true to the words and failed to give possession to the complainant. The forum ordered the developer to give possession of the flat to the complainant within six weeks from date of receiving the order.

    Forum orders builder to hand over flat - Mumbai - DNA

    >> What appalls me is the builders don't even spare Army men, who spent their lives in protecting our nation.......how can one be so GREEEEDY ? :o
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  • Thunderstorm building over real estate sector

    8 Mar, 2012, 06.29AM IST,

    Storm clouds are gathering over India's real estate sector yet again. March of 2012 would mean that pressures for repayment of loans due only to banks shall mount on the sector. Current estimates made by industry watchers suggest that the amount of outstanding loans due to banks are in excess of Rs 2 lakh crore, with about Rs 35,000 crore alone being due from the four big pan-Indian developers.

    Last March, many banks had managed to restructure loans and to defer repayment schedules. But the scenario now in 2012 for such large-scale restructuring is dismal: there is a cash crunch, interest rates are still very high, and many banks have too large an exposure to the sector.

    Perhaps a good time to analyse what went wrong, and to figure out which way this sector will swing.

    Firstly, both the supply side (developers) and the demand side (customers) have been borrowing at high interest rates during the last decade or so. Both thought they would get richer and the party would never end. Concepts such as second homes and weekend getaways were sold like hot cakes, and the needs of end-user customers were not addressed with care.

    Coupled with this basic anomaly was the fact that developers lapped up every location offered by municipal and government bodies, without caring to check how liveable these locations would be; what facilities would be needed to populate them, and how communities would develop around these mini cities.

    The result is that now we have a large surplus stock of dwelling units built without any basic infrastructure in place - these are the ghost towns that might take decades to get populated, while pressure on the older parts of established cities increases manifold.

    Such a situation was, perhaps, inevitable, given there is almost complete lack of research and analyses by developers on issues such as which locations would need the products being built, nor on data to determine which market segment to target, and where actual demand exists.

    Developers have been blindly following town-planning schemes released by municipal and planning bodies, always assuming that there is such a dearth of housing in the country that customers would lap up whatever is offered to them and forgetting that urban growth needs a host of economic stimulants to spur it.

    This is, in many locations, the core of the mess that the sector is facing now - an almost complete lack of market studies that should have been done before land was released for conversion to create urban habitats. This is also the main reason for surplus housing and commercial stock having been created in locations that are decades away from occupation and habitation.

    The lack of research and information on such urban issues is also compounded by the lack of a regulator for the sector. While the central government has been promising such a regulator for the last five years, political pressure has prevented the enactment of a much-needed law.

    The result: customers have gone bust along with errant developers that have become non-paying assets on books of many banks. Today, an interest of up to 15% is charged on home loans. The figure is too high, especially when there is no guarantee that the property would be made available in the period it was promised in.

    Developers, on the other hand, are borrowing at equally high rates of interest - sometimes 17%. This heavy cost of money, coupled with the uncertainties created by lack of infrastructure, municipality support or facilities needed for populating the ventures, is now showing signs of strain on their balance sheets.

    The recessionary trends, coupled with the increasing lack of confidence that India is facing, also means that banks are shying away from loaning too much money to both developers and consumers.

    These signs, plus other macro pointers - oil and energy costs going high, infrastructure spending coming down, the European economic slowdown, the US being in an election year and the uncertainties of a democracy with elections looming near - are all dark clouds for an industry that still refuses to allow itself to be regulated and works with archaic technologies and outsourced labour models.

    In such a stormy scenario, investors better tread cautiously, and consumers be wary of whom they are buying from.

    (The author is an architect)

    Thunderstorm building over real estate sector - The Economic Times

    ** The article was very good, hence copied it completely.
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